Banks that have thanked taxpayers for bailout cash by jacking up credit card interest rates have sparked a backlash on Capitol Hill. Majority Whip Dick Durbin (D-Ill.) recently pushed a measure that would cap interest rates at 36 percent and now Sen. Bernie Sanders, an independent from Vermont, has upped the ante.
"He's outbid me," said Durbin of the 15 percent cap Sanders plans to introduce as legislation later this week. "Bernie and I are on the same track with the same goal in mind. Whether we have the same number at the end of the day remains to be seen. But we both want to reinstitute the notion of a usury law for the United States."
Sanders said that he's been besieged by complaints from constituents who say they've recently seen their rates jump with little or no explanation. "The other thing people are really pissed off at is the arbitrariness," Sanders said. "They'll be told, we're raising your rates because it rained last Thursday. You were late on a telephone bill five years ago."
Consumers have been shocked to see the rate hikes come after the bailouts. "People are outraged [at the bailouts], but they're also outraged at the fact that right now, at a time when we are bailing out these major institutions--CitiGroup, Wells Fargo, Bank of America--and at a time these institutions are receiving literally almost zero interest loans from the fed, they are now charging the American people 25 to 30 percent interest rates."
Sanders said that the arbitrary nature of the recent hikes is proven by the fact that when a consumer calls and complains, the company often relents and reduces the interest rate. If the rate were truly based on a risk calculation, haggling couldn't bring it back down.
But that's only if a consumer catches the rate increase. "What they may not have even noticed is that their interest rates went up," said Sanders of the many consumers who don't read the fine print.
Banks argue that high interest rates are needed because some consumers are high credit risks. On a macro scale, a wave of credit card defaults could be a further shock to the economy and financial institutions are trying to tighten their balance sheets. American Express, for instance, is offering customers $300 to close their accounts.
As the economy tanks, even generally credit worthy consumers start worrying lenders. Huffington Post recently asked readers to share their tales
of rate hikes and many sent in documentation of a notice similar to this one from Capital One:
"Due to extraordinary changes in the economic environment, we're reviewing our existing credit card accounts. Having considered these economic conditions, your account current purchase rate and the length of time you've had this rate and account, we will be increasing your Purchase rate. We're also raising your Cash Advance and Default rates."
Sanders said the bill would also address the "egregious action regarding fees."
While preparing the bill, Sanders' office unearthed a few facts they think will help move the bill forward. First, former Sen. Alfonso D'Amato (D-N.Y.) introduced a similar amendment in 1991 and it passed the Senate 74-19 (it didn't become law).
Sanders also plans to use the fact that the federal government caps interest rates for credit cards issued by credit unions as fodder for his own bill. "If it can work for the many, many credit unions across the country, it certainly can work for our friends on Wall Street," he said.